Jobs Guarantees, good and bad

You can rely on the Labour party to live down to its reputation as a party of capitalism. Its "compulsory jobs guarantee" does so in two ways.

First, the fact that it will be compulsory for the long-term unemployed to take up the jobs panders to a mistaken "divide and rule" rhetoric that distinguishes between skivers and strivers. As Neil says, the party is - yet again - "running scared of the Daily Mail".

Secondly, the policy will, as Liam Byrne says, "provide subsidy" to private sector employers to hire the long-term unemployed.Labour will, in effect, give taxpayers' money to Tesco so it can employ more shelf-stackers.

And herein lies the economic problem with the scheme. At the margin, employers will prefer to hire a subsidized long-term unemployed person rather than an unsubsidized short-term unemployed one. In this sense, Labour's plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed, and has a deadweight cost of paying companies to do what they would have done anyway*.

Labour's plan thus falls far short of more sensible "employer of last resort"-style policies to combat unemployment. It accepts capitalism as it is, and fails to confront the fact that capitalism is unable to provide work for all.

All that said, there is something to be said for the plan. It starts from the sad fact that public opinion about welfare is ill-informed and ignorant. Faced with this, a sensible party should campaign in lies and govern in truth. It should wibble, as Byrne does, about people needing to be "working or training, not claiming" simply because this is the easiest way to get votes from bigots. In office, when the scheme is up and running, the compulsory element can be quietly dropped, on the grounds that it is costly to administer and enforce.

And then, when the evidence shows that subsidized jobs are of poor quality, and are displacing the shorter-term unemployed, the party can switch from subsidizing the private sector to creating new jobs through a programme of public works, in the way a proper job guarantee scheme would.

In this sense, if Labour's plan has any merit, it is as the thin end of a wedge.

* Granted, there might be an income effect; employers getting the subsidy might feel able to hire more people generally, but this effect might not be large.

Comments

[Alex]

I don't really understand why should it be "compulsory" and only for long-term unemployed? There are plenty of evidences from social sciences that people (or animals) don't behave as rational agents and prefer to earn their living. Therefore, Ed Balls completely misses the point that there are simply too few jobs at the moment.
Ironically some factors such as the cost of bus or train tickets may influence the decision for taking a job or staying on benefits. When it comes to small ridiculous things, such as bus fare to work, the individuals start behaving quite rationally.

[FromArseToElbow]

Re "a sensible party should campaign in lies and govern in truth". But this presumes a clean break between campaigning and governing, whereas the reality of representative democracy is that governing continues to be 80% campaigning. Consider Ian Duncan Smith, who has obviously put far more effort into propaganda than actual reform.

I'd like to believe Labour's announcement is just tactical flank-covering ahead of the vote on benefit increases, but I suspect Balls and Byrne genuinely believe that work is virtuous and that the modern economy can provide jobs for all. The poor, deluded saps.

[Ralph Musgrave]

Chris objects to distinguishing between “skivers and strivers”. Beveridge made the distinction, and quite right. The fact is that some people are hard-working while others are not. Or are we supposed to think that all human beings are 100% identical in all respects?

Second, Chris objects to employment subsidies as such. I have disastrous news for him: we’ve had hundreds of different employment subsidies in the West since WWII. Most labour market economists approve of one or more employment subsidies, though they disagree on which are worthwhile.

Third he claims “Labour's plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed..”. Well that’s the big $64K question: is such a scheme a zero sum game or not? Simply saying that it is zero sum cuts no ice with me. I’ve actually devoted a huge amount of time and effort to this question, and my conclusion is that it is not zero sum: i.e. it brings benefits. See:

http://mpra.ub.uni-muenchen.de/19094/

Fourth, I flatly disagree that “employer of last resort” policies (i.e. “job guarantee”) is better than Labour (or Tory) workfare schemes. Detailed reasons are in the above work of mine.

“The evidence shows that subsidized jobs are of poor quality”. So what do you expect? To put unskilled youths onto doing brain surgery? Workfare type jobs are pretty well bound to be “entry level” or relatively unskilled.

[gastro george]

How many people banged their heads against the wall when they heard this dying whimper of the last element of Labour's credibility?

At last it appeared that they might be showing some gumption, on an issue where Osborne had played a blatantly political game that some polls show is misjudged, and where they have some decent statistics to back them up.

But no, they shoot themselves in both feet again, tacitly accepting the rhetoric of scrounger-bashing and conceding the future framing of the argument.

If Labour is never going to defend the low paid, then what is it for?!

[Sam]

Let's assume that there's little or no net creation of jobs as a result of this subsidy, so that the effect is, exactly as Chris says, a transfer of entry-level jobs from the short-term unemployed to the long-term unemployed.

Is that not in itself a benefit? If there aren't enough jobs to go around, is it not better that the jobs that exist are shared among more people, giving them all useful recent job skills so that they're better able to absorb a growth in the job market, etc., etc., rather than maintaining a division between the "working" population and the "unemployed" population?

[FromArseToElbow]

@Ralph Musgrave, re "The fact is that some people are hard-working while others are not".

You are correct that all people are not identical, but it is also true that no individual is consistent, i.e. we are each of us capable of both working hard and swinging the lead. In practice, we oscillate between the two states due to interest in the job in hand, mental state, blood sugar level etc. The objection to the strivers/skivers trope is that it seeks to divide us into sheep and goats.

We should also bear in mind that there isn't a straight correlation between employment status and application. The clever lazy are found in offices, not on the sofa watching daytime TV.

Ultimately, this is not an issue about labour subsidising capital or the efficacy of workfare (I'll happily accept that it produces net benefits), but about coercion. The vast majority of the unemployed are willing to go on job-for-benefit schemes, so long as they aren't outrageously exploited. There is no lack of volunteers, any more than there was for the YTS and MSC schemes in the 80s.

The point about Labour's plan is that it perpetuates the myth that the unemployed are reluctant to work and must therefore be compelled.

[Keith]

Is it not a strange situation we are in today?

In most areas of British society we have become more liberal such as the improved status of women and the rise of Gay rights since the sixties. But we have all political parties promoting the idea that a large part of the population should be treated like serfs in Tsarist Russia or Stalins soviet union and made to work in a salt mine sorry for Tescos for free. Where are the politicians who used to believe in the development of the individual and the benefits of leisure to self and society? With the constant development of mechanisation we should be looking forward to a more human based society of leisure not trying to recreate serfdom.

[gastro george]

@Keith

And it becomes stranger, because it's not just the underserfs who are losing out - although they are taking the brunt of it.

For years the story has been that we-are-all-middle-class-now, and that has been the self-identification that has been propagandised - and that has been abetted by the transition from manual to office work for many. Yet now we find that this is an illusion. Real incomes for the majority have actually been stagnant for decades, and the illusion of prosperity was contingent on credit.

We are now entering the next phase of expropriation. Even those on £60k will now start to lose four-figure amounts per year in child benefit. This is entirely deliberate. The withdrawal of state support from the real middle classes is designed to reduce support for all benefits ("why should they get something when I get nothing") - all for the benefit of the top 1% that caused the problem in the first place.

[gastro george]

And what does Labour do ...?

[Mick Beaman]

Does the economic argument miss a simple human reality? People who have been out of work for a long time (and this idea was aimed at the long term unemployed)can get out of the habit of working.

[aragon]

I contributed to the design of the Future Jobs Fund. You won't find my real name associated with it.

Read what Tony Wilson has to say about the FJF. Please follw the links.

http://www.cesi.org.uk/blog/2012/nov/future-jobs-fund-worked-we-shouldnt-bring-it-back-%E2%80%93-we-can-do-even-better

It is not workfare (The minimum wage is paid), the jobs were real and allowed the participants to demonstrate their suitability for work.

The spin misrepresents the way the original scheme which concentrated on socially useful work and was non-punative (much nearer to a job guarantee scheme) with a increase in income and self-estime, even if there wasn't a long term job at the end.

The current Labour leadership are unable or unwilling to challange the framing of the debate, including, on Welfare and the Economy.

It was a very good scheme.

[Neil Wilson]

FJF also excluded the private sector. The jobs were only available outside the private sector.

Whereas the current Work Programme includes the private sector.

The FJF largely worked and the current Work programme has failed.

Could the inclusion of the fickle private sector be the key difference?

For me though it is a moral position.

Government should not be subsidising labour into private firms. If government is paying for the labour it should be using it for its own purposes. The private sector can always bid it away by offering a decent wage.

The private sector will only value labour when it has to compete to get it.

[Alex]

"Therefore, Ed Balls completely misses the point that there are simply too few jobs at the moment."

> did you miss the bit where he explicitly undertook to create them?

[William Richardson]

If the minimum wage was increased to a Decent Civilised Living Wage, this would increase the income effect, leveraging up wages to catch up with the lost labour productivity income wedge and equalising incomes from the bottom up.

[james higham]

And then, when the evidence shows that subsidized jobs are of poor quality, and are displacing the shorter-term unemployed,

Not only that but those non-jobs put those people into deep hock, then they end. It's not the solution.

[Mark Scott]

"a sensible party should campaign in lies and govern in truth. [...] simply because this is the easiest way to get votes from bigots."

This has to be one of the most depressing things I've read on any political blog, though heaven knows it's probably true.

[WWWatchr]

A single person living alone would lose all benefits except maybe a little housing benefit. If they are only guaranteed 25 hours of work per week on minimum wage this could possibly mean that they are worse off, especially if they have to accept jobs that could be up to 90 minutes to travel to, have to pay most of their rent, have to pay council tax, have to pay for precriptions and dental treatment, plus the ever increasing cost of gas, electricity and food.

[Ralph Musgrave]

Aragon claims the Future Jobs Fund was not Workfare. Yes it was: those involved were threatned with benefit withdrawal if they didn’t take part (if the latter is your definition of workfare, and I think most people define it that way). See:

http://webarchive.nationalarchives.gov.uk/+/www.direct.gov.uk/en/Employment/Jobseekers/LookingForWork/DG_184167

However FJF seems to have worked well, so it needs to be studied and lessons learned. Against that, one reason it worked was the VERY SMALL number of people involved. About 0.03% of the workforce according to my calculations. The relevance of that is that everything suffers from diminishing returns. I.e. it’s easy to find productive work for subsidised temporary employees or “workfare employees” when numbers are small. In contrast, if workfare (or whatever you call it) is to be implemented on the sort of scale that advocates of Modern Monetary Theory want their “Job Guarantee” to be implemented, well that’s a different ball game.

[aragon]

The terms on Directgov are the standard Unemployment Benefit terms.

FJF was not workfare because:
People were recruited not allocated to the FJF Jobs. Wages rather than benefits plus expense were paid. The jobs addressed social needs and were not makework schemes.

When I run the country, full employment (for UK citizens) will once again be Government policy.

I see no shortage of opportunities for employment in social care, education health etc, Not to mention a half a trillion pound investment programme in infrastructure.

We should concentrate on the distribution of wealth, not the perceived shortage of money. Give me a lever and a fulcrum and I can move the world!

[Alex]

@ Alex

"did you miss the bit where he explicitly undertook to create them?"

I am confused with your question. I could not find any specifics in the Ed Balls blog.

@ Ralph

between June 2011 and July 2012

"In total 31,000 job outcome payments were paid to Work Programme providers. This is equivalent to 3.2% of individuals referred to the programme in the three main groups achieving a job outcome. The figure for all participant groups is 3.5%."

Source: http://www.cesi.org.uk/keypolicy/work-programme-performance-statistics-inclusion-analysis

[Mike Cornelia]

I have noticed there are a lot of jobs for driving bus rentals around. My brother really needed work and he became a driver. It is actually pretty good pay. I would do it, but I have a great job right now. Who knows what the future holds though.